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Technology Stocks : PLPT: Pulsepoint Communications (previously DGSD) -- Ignore unavailable to you. Want to Upgrade?

To: del clark who wrote (165)	1/2/1998 12:12:00 AM
From: Mike Winn	Read Replies (2) \| Respond to of 614

Del, You said: A reverse split is just the opposite. A company gets in financial trouble and ends up with a lot of shares on the market with no way to earn enough to get in the black. It usually is a negative. Only 1 in 100 companies succeed after a reverse split. But they do succeed. In DGSD's case they have 60 million outstanding. If they give each holder 1 share for every 5 they own and adjust the price accordingly they end up with 12 million shares outstanding making it easier to make positive earnings per share. It also makes the share price higher so they do not lose listing on the Nasdaq. Usually it causes a sell off as no one wants to get screwed out of their shares of stock owned. Usually it is the begining of the end for a mismanaged company. Nah, you said it wrong. Nothing changes in a split or a reverse split as far as the financial is concerned. It's all psychological. Let say DGSD makes 1.2 million in earnings in 1998. At 60 million shares, they will earn 2 cents per share. If the stock is now trading at 1 3/4, the PE will be 1.75/0.02 = 87.5. If now DGSD do a 5:1 reverse plit, the number of shares will be reduced to 60/5 = 12 million share. The earnings per share will be now 1.2/12 = 10 cents/share. But since this is a reverse split, the price of each share will change to (1 3/4 * 5) = 8.75. The PE is still 8.75/0.1 = 87.5. You see, nothing changes. The PE is the same. What changes is the psychology. At 8.75/share and the number of outstanding shares at 12 million, the company looks more like a strong company. Also, NASDAQ only accepts stocks trading above a dollar, so if the company continues to have sh*tty earnings and the stock tanks, it will take longer to go from $8.75 down to a dollar. At 1 3/4, it's too close to 1. It's all psychological, my friend.